The Impacts Of The Introduction Of CSI-300 Index Futures On Stock Market Volatility Of China

The stock index futures,with underlying assets based on stock index,is a new variety of financial derivatives.It's commended as "the most great financial innovation since 1970s",with functions such as price discovery,hedging and so on.The original intention of stock index futures is to hedge the systemic risks and stabilize the stock market.It has more than 30 years since the introduction of first index futures in the world,but the scholar holds different ideas for its expected function of stabilizing spot market.Especially during the period of crash,stock index futures is always criticized as the chief offender of stock market volatility.just as scholars abroad,scholars in home have different ideas on the function of stabilizing spot market,and investors have many limitations in the understanding of stock index futures.Besides,since June 15,2015,China stock market suffered a slump,for this abnormal fluctuation,some people put forward the idea that "the stock index futures is the source of this crash".And all this pushed the CSI 300 stock index futures to the front of public voice.So,this paper aimed to explore and research the impact of CSI 300 stock index futures on volatility of China's stock market.To research this question,we employed both theoretical research and empirical research.In theoretical study,we analyzed how stock index futures affected spot market's volatility from the aspect of information transmission effect,trading behavior effect and effect of arbitrage.In empirical study,we adopted both widely used GARCH model and newly developed Policy Evaluation Approach to discuss the effect of stock index futures on stock market.Through research,we draws the following three conclusions:(1)Same as many studies,we employed GARCH model to study the impact of CSI 300 stock index futures on stock market volatility.Firstly,by establishing GARCH model for both samples before and after the introduction of CSI 300 stock index futures,we find that,compared with new information,the impulse of old information to stock market volatility is bigger,and after the introduction of stock index futures,the impact of new information on volatility become smaller,while the impact of old information on volatility become bigger.So,we can conclude that the efficiency of information transmission reduced after the introduction of CSI 300 stock index futures.Secondly,by establishing a GARCH model with a dummy variable which represent the introduction of stock index futures,we find that the coefficient of dummy variable is significantly negative,it means that the volatility of spot market reduced after the introduction of CSI 300 stock index futures.But we can also find that the coefficient is very small,it means the effect that the introduction of stock index futures can reduce spot market volatility is limited.Finally,by establishing a EGARCH model to study the leverage effect of stock market volatility,we find that the volatility of China stock market have a significant informational asymmetric effect,and the introduction of CSI 300 stock index futures reduce that effect in some way.(2)Besides GARCH model,we also used a Policy Evaluation Approach based on counterfactuals to study policy effect of the introduction of CSI 300 stock index futures on spot market volatility.We find that the counterfactual volatility is higher than the real volatility after the introduction of CSI 300 stock index futures,it means the volatility reduced and stock index futures plays a role in stabilizing spot market.Then,to check the robustness of our empirical result,we conducted a Placebo Test,and the result is robust.(3)After the empirical study,we conducted a comparison of the two empirical methods.By comparison,we find concluded that both method have their advantages and disadvantages and they can complement each other.GARCH model has an advantage in describing the features of stock market volatility,such as volatility clustering effect,leverage effect and so on.But we should notice that GARCH model also have some short coming,such as omitted variable bias.While the Policy Evaluation Approach can overcome the omitted variable bias by considering effect of both international stock markets' indices and domestic macro-economy variables on spot market volatility.But compared with GARCH model,it can't depict the character of spot market volatility well.In summary,by research,we find that CSI 300 stock index futures plays a role in reducing spot market volatility and stabilizing spot market.But at present,the strength of this kind of function is limited,and we should improve the stock index futures market for further.